Covenants, Conditions and Restrictions (CC&Rs)

How are the elements of a community defined? What establishes the components of the common areas versus homeowner-owned areas? Where is it written that certain elements are the responsibility of the homeowner and others the responsibility of the association? These issues and others are established in what’s called an association’s Covenants, Conditions and Restrictions (CC&Rs). Attorneys Stephen Guerra and Jeffrey Vollmer, of Makower Abbate Guerra Wegner Vollmer PLLC in Farmington Hills, Michigan spoke with us at length and explained the nuances of CC&Rs as well as many other important common interest community topics. One important note — in Michigan, as well as some other states, statutes are different for condominiums versus homeowner associations (HOAs). That is something to keep in mind for nearly all aspects of association governance and living.

Guerra explained that CC&Rs typically refer to an eponymous document called the declaration of covenants, conditions and restrictions, which is recorded against property in a subdivision. It’s a title that is in general use for a document that contains restrictive covenants — or use restrictions. Sometimes, in jurisdictions other than Michigan, this title is also given to a document of restrictive covenants in a condominium. However, in Michigan, the document that serves this purpose in a condominium is called the Master Deed.

CC&Rs are traditionally recorded as land becomes subject to them through filing with the county register of deeds office.

Now, CC&Rs should not be confused with the rules and regulations of an association. Rules and regulations are something different entirely. Most distinctively, boards can generally change rules and regulations without holding a vote of the association’s members — the CC&Rs cannot be changed in this manner. Rules and regulations deal more with the more hum-drum details of daily life, such as when the trash is allowed at the curb and what items are restricted from being placed on balconies. However the rules and regulations work in conjunction with the CC&Rs. How so? First, Vollmer noted a distinction between how these work in condominiums versus HOAs. He explained that the Michigan Condominium Act recognizes an association’s rules and regulations as part of the Condominium Documents all residents must follow in the State of Michigan. They are not statutorily recognized in HOAs that utilize a declaration of CC&Rs. So whether or not a board has rule power at all is going to depend on whether there is a grant of power to pass rules in the declaration itself. At that point the declaration is going to govern the scope of that rule making power and the depth of rules and regulations the HOA can enact.

In condominiums, where it is provided by statute — that is, state law — the rules and regulations have been determined by various court cases in Michigan to apply to what are referred to as de minimis aspects of daily life, and to clarify grants of discretion given to the governing body. “For instance, a restriction may prohibit landscaping on the common elements except when approved by the board of directors. The board can then adopt rules and regulations to clarify which type of landscaping will not require specific board approval. The rules serve to outline the parameters of discretion afforded the board.” Vollmer said.

The de minimus aspect of the daily life component of rules and regulations is very similar to the clarification of a grant of discretion. “The restrictions may prohibit unsightly conditions or conditions which are detrimental to the appearance of the condominium project,” said Vollmer. The rules and regulations can actually specify what is determined to be an unsightly or detrimental condition. It can deal with regulating when residents can place their garbage out for pick-up and when the containers need to be brought back.

These types of details that clarify substantive restrictions are what rules and regulations are for. Rules and regulations cannot establish substantive restrictions. Since they are not recorded or voted upon, you can’t use rules and regulations to fill gaps or needs where you don’t have a grant of discretion already relating to the context in question. “. A good example is the absence of any restriction limiting pets in the community. The rules and regulations cannot say, ‘ No pets,’” Vollmer said. Something like that requires an amendment of the declaration or the condominium bylaws to establish the substantive restriction. “Having rules and regulations affords the board some flexibility in keeping up with the needs and desires of the residents over time because rules and regulations can usually be amended by a vote of the board. Rules and regulations are not intended to modify or alter the bylaws or use restrictions, as such amendments usually require some super-majority vote of the members,” Vollmer said.

Which governing document carries the most weight in an association? If you’re looking for how an association operates, articles of incorporation are number one. Bylaws are number two.

If you’re talking about restrictions on use of property, you’re going to be talking about the declaration of restrictions in a subdivision or HOA sense and talking about the master deed and condominium bylaws in a condominium sense. “We tend to separate the master deed, bylaws and condominium subdivision plans, but keep in mind that bylaws and condominium subdivision plans are exhibits to the recorded master deed,” Vollmer said.

When referring to the master deed, you’re referring to three separate parts of the master deed in conjunction with one another:
-the Master Deed itself
-the condominium bylaws, usually as exhibit A to the master deed
-the condominium subdivision plan , usually as exhibit B to the master deed
How detailed do the CC&Rs need to be in the governing documents? According to Vollmer, older CC&Rs mainly concerned themselves with a list of building restrictions. More modern declarations deal with several different items. In addition to the architectural restrictions, more attention is paid to certain facets of operating an association, levying assessments and enforcement powers. In cases where you have shared recreational facilities, the CC&Rs specify the usage of those facilities.

“The CC&R’s should identify the creation of an association to administer the community and should reference the existence of bylaws for that association,” said Vollmer. If an association is funded through assessments or dues, there should be detailed provisions providing for those assessments and their enforcement. “The recorded CC&R’s should be the primary source for the substantive restrictions governing the community, including the types and purposes of any assessments. HOA bylaws should be focused on governance issues, such as voting, meetings, directors and officers. Any attempts to place substantive restrictions in the Bylaws are misguided,” Vollmer said. The existence of a statutory framework for assessments in condominium projects, on the other hand, makes them entirely different and allows such matters to be covered in the master deed and condominium bylaws.

It must also be specified how the association may change those restrictions from time to time. Those are the components of a good set of CC&Rs. Of course, the needs are dependent on what the association is going to take care of. “The scope and breadth of the restrictions may be far less if the only common area is an entranceway. If there is a pool, clubhouse and other recreational facilities, the restrictions may be more detailed,” Vollmer said.

One potential problem with governing documents is the use of vague language. On this topic, Guerra explained that the biggest issue with vague language is that it’s subject multiple interpretations, with the final interpretation coming down to a judge.

“If the documents are unclear, judges will focus on figuring out ‘the intent of the drafter’ by reviewing all of the documents in their entirety to ascertain what the drafter desired given the restrictive scheme in the project ,” Vollmer said.

There are many judicial rules and maxims by which these interpretations are made. One example, he explained, is that ambiguous provisions are resolved in favor of free use of the property. “Under this judicial rule, restrictions which are not carefully drafted may have no impact because ‘free use’ of the property is preferred over enforcing an ambiguous restriction,” he said.

There are situations where vague language cannot be construed. “If you are dealing with competing interpretations that cannot be resolved, you should consider amending the language to eliminate this problem,” he explained. Vollmer stressed that amending the language before a problem arises is less costly than fighting in court over competing interpretations, and it also ensures that the document reflects the needs of the community at that given time.

If boards follow their rules and documents, does the potential exist for them to be challenged successfully?

“Recorded restrictions must follow the rule of reason,” Vollmer said. In other words, just because something is in the restrictions or rules and regulations, does not mean it’s necessarily enforceable. There must be some useful purpose being served by a particular regulation. It cannot violate public policy and it must not violate any other law or regulation by which the community that it is imposed upon is governed.

As an example: “A common restriction in older documents prohibits satellite dishes anywhere in a community without written permission. However, that restriction is at odds with FCC Rules and Orders preventing associations from limiting certain dishes and installation locations. The permissive use of the law trumps the restriction.,” Vollmer said.

Another example arises with respect to enforcing single-family use restrictions, particularly if they require residents to be related.. “While they may seem reasonable, any attempt to enforce them will violate the Fair Housing Act and will subject the association to a discrimination complaint ,” he said.
A provision can be unenforceable simply in the way it has been drafted. “While Michigan law recognizes public policy supporting the right to enact restrictive covenants, those restrictions cannot violate other areas of established public policy,” he said. “Voiding a restriction based on public policy grounds is a convenient way for a judge to strike down an unreasonable restriction.” An example of this could be someone wanting to reduce their carbon footprint by being allowed to use a clothesline in an HOA where clotheslines are prohibited in the rules.

Another example of rules that would be challenged are those which violate the Fair Housing Act Amendments. We provide detail on the Fair Housing Act in another chapter of this book; however, we mention it here as it affects the enforceability of rules and regulations.

“It applies to condominium associations and HOA’s regardless of when those communities were formed and their restrictions were drafted ,” said Vollmer. Many old documents fail to account for the rights of disabled residents to seek reasonable accommodations from their association or make reasonable modifications to common areas. . “Some of those principles have been incorporated into the Michigan Condominium Act.” Michigan also has its own anti-discrimination statute, The Elliott-Larsen Civil Rights Act, which piggy backs on what the Federal Government has done with the Fair Housing Act amendments.

“Any enforcement action, as well as requests from disabled residents, cannot be evaluated on the text of the restrictions alone. Boards must view these issues under the lens of the relevant anti-discrimination statutes ,” said Vollmer.

He explained that these types of complaints are becoming plentiful, and they are easy to file. They are expensive for an association to deal. “Restrictions on pets are slowly being eroded away. Disabled residents may present evidence of the need for an emotional support animal under the Fair Housing Act amendments ,” he said. Pet restrictions have been marginalized by the relative ease through which residents may visit a doctor willing to write a letter stating the resident has a disability that is remedied by them keeping a pet.

“The costs and potential legal exposure of a civil rights complaint associated with challenging the existence of a disability or the need for the pet usually means that the pet will be permitted ,” he said.

Because of the justifiable fear of facing a civil rights lawsuit, many of these decisions are determined administratively by the associations rather than in a court of law. Thus, the complainant has a good chance of getting their way in these matters.

Is a committee’s decision final when penalizing a resident rule-breaker, or can a resident appeal to an association’s board?

“It depends on the association’s governing documents and whether a committee has been formed in the first place ,” said Vollmer.

He explained that most committees are formed by and staffed by the board of directors. “Occasionally, governing documents establish committees whose members are voted on by the owners instead of appointed by the board. Those committees are known as committees of the membership. ” Committees of the membership have separate powers and are more autonomous from the board of directors than traditional committees (the social committee, communications committee, etc.).

Committees that operate by and through the board of directors usually do not have independent power, other than to recommend to the board. On the other hand, committees of the membership can have separate powers and would not need a grant of authority from the board since they derive their authority from the documents themselves.

However, if a decision has been made by the board rendering a resident guilty of breaking a certain rule, it doesn’t make sense for the resident to go to the same committee to appeal. “If there is no committee in place to review violations, the ultimate decision rests with the Board. There is no higher power within the association. ” said Vollmer. He noted that if an association is going to have an appeal procedure, they should have one that makes rational sense. But appeal procedures before the same people within an organization really don’t make sense, and ultimately, if the board makes a decision that a resident disagrees with, the resident should take their appeal to a court of law.

How does an association determine fine amounts? “Most often the restrictions or bylaws will contain an escalating fine schedule in which the first violation results in a warning notice, the second one gets a fine, the third one gets a higher fine, the fourth and subsequent ones result in the largest fine. Fortunately for condominium associations, even if the fine amounts are not listed in the bylaws, state law authorizes them within a rule adopted by the board. Such a structure eliminates arbitrary fines,” said Vollmer. Once you take discretion out of the process, you remove the possibility of someone saying the board has behaved in an arbitrary or capricious manner.

However, it is not necessary to have a fine schedule, and you can have a system where each fine is determined by the body that is doing the hearing and then ultimately confirmed by the board of directors. Some associations have different fines based on the severity of the violations. “If there is extra incentive to protect against threats to the safety and welfare of the community, an enhanced fine may be warranted, as opposed to following the escalating fine structure for something like putting trash out early ,” he said.

The more discretion you put into the system, the more you need to keep good records of the circumstances that comprise a violation and the fine levied, along with the factual circumstances surrounding that. “Boards should be consistent in levying fines. Varying from the fine schedule or specified fine for a particular violation may result in the board being accused of arbitrary or discriminatory conduct ,” said Vollmer.

Vollmer also added that associations are not required to provide an appeal process for fines if the board conducted the hearing.

The concept of Due Process is found in the US Constitution “Governments shall not deprive any person of property without due process of law. While associations are not government actors, certain due process principles are applicable to the assessment of monetary fines. Associations should not, and cannot in the condominium setting, levy monetary fines without placing the offender on notice and providing a hearing ,” said Vollmer.

Due process requires that the person who is being accused is given knowledge of that which they are being accused. There is a certain amount of specificity needed to inform the person of what they did, and when, and that it was in violation of a particularly identified restriction.

“Initially, the offender is entitled to notice of the particular violation of the governing document and what the penalty may be. After notice has been issued, the offender should receive a hearing to offer a defense to the alleged violation, including the right to present evidence in defense of the violation. ,” Vollmer said.

If it can be determined that a violation has actually occurred after following those steps, and the association has the right to fine, due process has been satisfied and the fine may be levied .

What is the process for an association to amend their CC&Rs? In a condominium situation, according to Vollmer, that is covered by a mandatory statute and requires two-thirds of all eligible voting co-owners in an association to approve it. In seven different instances noted in Michigan’s statutes, first mortgagees also need to approve.

How does the governing body make knowledge of its actions available to residents, and what is meant by transparency? Some people who talk about transparency are talking about government by the whole. To them, transparency means everything gets voted on by the members, and the vast majority must agree on everything that is enacted. According to Vollmer, that is not the practical implication of transparency in community associations. The members of the association vote for people to serve on the board to make decisions for them.

In its real sense, transparency is where decisions are made known to the co-owners. “Generally, boards should keep their meetings open to observation by the members ,” said Vollmer, “but that general rule can be limited by the meeting location. If the meeting is not being held at a clubhouse or other public location, and is confined to a director’s home, it’s reasonable for board members to be uncomfortable in making the meeting open to the public .” However, he said that if those who come to the meetings make those meetings unproductive because they try to insert themselves into the work of the board, that doesn’t work. “Residents attending board meetings should not interject themselves into board discussions – those residents were not the individuals elected to the board! There are many tough decisions that need to be made, such as whether or not to raise assessments, and therefore an elected board is needed to make those decisions.

Should there be secret meetings, where there are no minutes kept and no one knows about the meetings?

No, there should not be. But can the board operate without being in full view of the association members, especially when they’re deliberating decisions involving a legal privilege or privacy?
“Absolutely, boards are entitled to go into executive session to discuss those matters,” said Vollmer. “That does not reflect a lack of transparency; certain decisions affecting the association require it.” There needs to be respect for those volunteering their time as board members to do the job they’re elected to do. However, there should be access to records. According to Guerra, in the State of Michigan the Condominium Act and Nonprofit Corporation Act cover access to records, but meetings and deliberations do not have to be an open process.

What kind of notice is required to inform residents that a new rule is in effect? According to Vollmer, there is nothing in the law that requires specific notice. You either have no requirement or some stated requirement in the restrictions. Many restrictions in the State of Michigan require a thirty-day advance notice.

He also said that you usually won’t see terms of notice in any CC&Rs. It is part of the policy-making of the association to determine how much notice will be given.

Alternative Dispute Resolution (ADR) is basically arbitration or mediation either inside the association or by an outside party. There could be a number of dispute outcomes that could be imagined as possibilities within an association. “By and large, internal dispute resolution within an association tries to fix claims that other residents are violating the documents ,” said Vollmer . It could be used where co-owners are complaining about co-owners, the association is complaining about co-owners, or co-owners complaining about the association.

The nature of mediation, which is to get people to talk about and solve their own disputes, in the traditional model, does not require independent knowledge of the underlying subject matter. “That is true,” said Vollmer. “Mediators do not need specific expertise in the underlying subject matter, just a willingness to explore potential resolutions that solve the dispute and to be creative in doing so .”

On the other hand, arbitration is most effective if the arbitrator has knowledge of the subject matter. “Arbitrating a matter before someone who has no knowledge of community associations is akin to litigating a case in front of judges. Generally, you will be tasked with educating the arbitrator so he or she may arrive at an informed decision .” Unlike in a court situation, where you can’t choose the judge, in arbitration, Vollmer explained, you can choose your own arbitrator. You have the best opportunity here to choose someone who is qualified. Vollmer recommends that the arbitrator you choose should have knowledge of community association law and governance.

There are no actual decisions imposed by mediators. A mediator does not make decisions. A mediator facilitates discussion, and if a resolution is achieved, an agreement is entered into as a contract between the two disputing parties. This is not the case in arbitration. “An arbitrator will issue a binding decision within the scope of the arbitration contract ,” said Vollmer. “Under the applicable Uniform Arbitration Act, the binding decision issued by the arbitrator is going to be final and enforceable by the circuit court, and cannot be appealed, unless the arbitration agreement contains an exception ,” he said.

Who pays for the dispute resolution? Vollmer said that some modern documents specify that the association may send parties into mediation at the co-owner’s expense. If it’s an association arbitration, it’s probably going to be at least a shared expense between the people agreeing to arbitrate. “And sometimes the loser pays the arbitration costs,” he said.